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Many American’s these days seem to be on a ferris wheel of debt payoff and debt acquisition.  They make a little progress toward their credit card balances, but then something comes up increasing them once again.  It seems sometimes we take one step forward and two steps back.  But most people know that one person who actually paid off their debt and became truly financially free.  What did they do to get them there?  Did they win the lottery, get a huge raise, or a large sum from an inheritance?  Often, the answer is no.  They simply followed a few rules and made a decision to get out of debt.  Here are a some of the debt loss secrets of the financially free.

1.  Stop Spending

The first secret seems obvious, but it is the hardest one to accomplish.  Stop spending money.  Paying off debt is hard on its on, but it is impossible if you keep creating more debt at the same time.  You must decide to forgo an luxuries until your debt is paid off.  Cut up the credit cards, turn off the TV, stay indoors – whatever it takes for you to stop spending money.  Focus on the essentials and things you absolutely must fix; other than that, spend nothing.

2.  Create a Budget

Next, you need a budget.  It is surprising how many people do not have an active budget.  They either spend with a general idea of how much they have for a certain area of their finances or they know what they should spend according to the budget, but simply ignore it altogether.  It is easy to end up with more month at the end of your money when you don’t know what you should have spent from week to week.  Write down all of your expenses and bills, put a dollar amount to them, make sure that doesn’t exceed your income, and put the rest toward debt.  Let the budget be your guide.

3.  Emergency Fund

Another important secret of the financially free is an emergency fund.  What that means is you set aside a certain amount of money (before you start paying aggressively on debt) in case you have something come up that was unexpected – a true emergency.  This fund can be $500, $1000, or $2000 depending on your income.  Then if something happens, like you have a tire blowout or your washing machine dies, you use YOUR cash from the emergency find to replace them.  This way, you don’t pay interest and you get out of the habit of putting things on a credit card.  Yes, you must now pay your emergency fund back to its previous level before you start paying extra on debt again, but it isn’t near as stressful and it is actually quite freeing when you realize that you are now your own bank.

4.  Debt Snowball

If there isn’t any other secret you remember, remember the debt snowball.  The debt snowball is a time-proven method of those who have actually seen their last credit card bill.  It basically goes like this:  list your debts smallest to largest.  Pay minimums on everything but the smallest debt.  Pay as much as possible on the smallest debt until it is gone.  Finally, take what you were paying on that debt, and add it to what you are already paying on the next smallest debt.  This method works because as you pay off debts, your available cash that can be paid on debt grows – like a snowball.  By the time you reach the last debt, you will be paying a significant amount against it – the sum of all of the other debt minimums plus your available cash.  And guess what, when your last debt is paid off, you get to put that cash to anything you want – saving, retirement, college, and maybe even a vacation.

5.  Sell

This is the secret no one wants to talk about.  Sell something.  Yes, that may mean your beloved motorcycle, financed for 4 years at 12%.  There is no faster way to get rid of debt than to sell things attached to debt.  Of course, you might also need to sell some things that are paid off.  Because in reality, they aren’t really paid off.  Sure, you may have paid off that bill or paid with cash at purchase, but you charged other things that are still costing you money every month.  Have a garage sale, put things on eBay or Craigslist, return it to the store if you purchased it recently – anything to lighten your debt load.  Hide the kids – mommy’s going on a selling spree.

6.  Rewards

Last but not least, reward yourself.  Set small rewards (that you can pay for with cash) at significant milestones on the way.  Paying off debt is a journey and you have to stay motivated.  Perhaps you’d get a reward after you pay off three credit cards, maybe a night on the town.  It should be interesting enough that you look forward to it, but not so often that you are spending good money which could be wiping out your debt faster.

Good luck and may you all reach your financial goals!

Losing Debt – 6 Debt Loss Secrets of the Financially Free

Losing Debt - 6 Debt Loss Secrets of the Financially Free